Identifier
Created
Classification
Origin
06DUBAI5421
2006-08-26 12:59:00
SECRET//NOFORN
Consulate Dubai
Cable title:  

IRPO: AUGUST 2006 ECONOMIC UPDATE

Tags:  IR ECON EFIN 
pdf how-to read a cable
VZCZCXRO1963
PP RUEHBC RUEHKUK
DE RUEHDE #5421/01 2381259
ZNY SSSSS ZZH
P 261259Z AUG 06
FM AMCONSUL DUBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 3303
INFO RUCNIRA/IRAN COLLECTIVE
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEHAD/AMEMBASSY ABU DHABI PRIORITY 1724
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHAD/USDAO ABU DHABI TC
RUEHDE/AMCONSUL DUBAI 6300
S E C R E T SECTION 01 OF 02 DUBAI 005421 

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E.O. 12958: DECL: 8/26/2016
TAGS: IR ECON EFIN
SUBJECT: IRPO: AUGUST 2006 ECONOMIC UPDATE

REF: A) 05 DUBAI 4989; B) DUBAI 3999

DUBAI 00005421 001.2 OF 002


CLASSIFIED BY: Timothy M. Brys, Acting IRPO Chief, Dubai, UAE.
REASON: 1.4 (b)

S E C R E T SECTION 01 OF 02 DUBAI 005421

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NOFORN
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E.O. 12958: DECL: 8/26/2016
TAGS: IR ECON EFIN
SUBJECT: IRPO: AUGUST 2006 ECONOMIC UPDATE

REF: A) 05 DUBAI 4989; B) DUBAI 3999

DUBAI 00005421 001.2 OF 002


CLASSIFIED BY: Timothy M. Brys, Acting IRPO Chief, Dubai, UAE.
REASON: 1.4 (b)


1.(S//NF) Summary: Contacts and visa applicants constantly tell
us that business in Iran is "dead." They claim it is worse now
than in Ahmadinejad's first few months in office, and continues
to deteriorate. This downturn in business has also affected
businesses with ties to the Iranian government. Contacts and
visa applicants report that prices for goods have risen at least
20 percent since the Persian New Year (21 March),exacerbating
an already difficult economic situation for many Iranians.
Iran's economic situation is made worse by problems with
budgetary issues and corruption. End summary.

Business and Investment Climate Takes a Dive
--------------

2.(SBU) According to a recent report in the Economist, the
business atmosphere in Iran in 2005 was the worst among 60
developing nations surveyed, while the investment climate was
evaluated as unfavorable. Iran's Tehran Stock Exchange (TSE),
has fallen almost 4000 points since September 2004, according to
TSE figures (Ref A). In addition, the number of shareholders in

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the TSE reportedly dropped from 53,000 in September 2004 to
17,000 in March 2006, and the share of real buyers has dropped
from 35 to 17 percent.

Abysmal Economic Climate Affects Even the Government
-------------- --------------

3.(S//NF) A board member of Iran's Alborz Insurance Company
recently claimed to Conoff that two issues are to blame for
Iran's current economic situation: 1) the fiscal policy of the
Iranian government; and 2) the current political situation. He
believes the situation will not improve under the current
government. He repeated the oft-heard complaint that many of
those in charge of policy in the current Iranian administration
have little experience. As a result of the recent government
decision to lower interest rates, banks are giving fewer loans.
In addition, building projects have stopped as many in the
construction business have adopted a "wait and see" attitude.

4.(S//NF) According to the head of a private consulting business

in Iran, business has worsened since Ahmadinejad took office. A
large percentage of the consultant's business is
government-related, and he claimed the Iranian government is
often late with payments as a result of Iran's poor economic
climate. When the government does pay, he claimed, it is only
small amounts at a time. A Tehran-based businessman reiterated
these comments, and told Acting Consul General on July 15 that
the current economic situation in Iran is very bad. He said the
government is not paying contractors, and claimed that he knew
of one who had not been paid by the government in six months. He
alleged, however, that these contractors "were sure" they would
eventually be paid.

Inflation on the Rise
--------------

5.(S//NF) According to an announcement by the Central Bank in
June, Iran's inflation rate dropped to 12.1 percent during March
2005 to 2006. Iran's Economic Minister, Davud Danesh Jafari,
announced on July 11, that the rate had fallen to 10.3 percent
from June 2005. Both of these figures, however, are far below
the level cited by analysts. In mid-June, 50 prominent
economists wrote an open letter to President Ahmadinejad,
warning that his government's fiscal policies were promoting
"skyrocketing inflation." According to an Iran Daily (an
English-language news website) report from August 20, a
professor from Allameh Tabatabaei University stated that prices
for consumer goods and services have risen 42 percent since the
beginning of the Iranian new year (March 21) and put the
"unofficial" inflation rate at 30 percent. He admitted that the
government "has managed to bring prices under control in recent
months," but despite these "controls" inflation remains at 28-30
percent. The same article quoted a former deputy economic
minister, who stated that official inflation figures released by
the Central Bank are accurate and "truly reflect the economic
situation."

6.(S//NF) A number of contacts and Iranian visa applicants in
Dubai have complained about the recent increase in prices on
consumer goods and overall inflation (tavarom in FARSI) in Iran.
An Iranian who owns a grocery store in Iran told Conoff on June
13 during a visa interview that prices have gone up an average
of 20 percent since the beginning of the Iranian new year. He

DUBAI 00005421 002.2 OF 002


was unclear about the exact cause of the increase, and was
unsure if fear over possible sanctions was leading to hoarding
and driving the prices higher as had been claimed to Conoff by a
separate visa applicant in May. He surmised, however, that the
increase was probably a simple case of supply and demand. He
claimed that the highest prices were being charged for imported
products, especially beef, and also Iranian products that could
fetch a higher price if exported. Interestingly, he did not
blame the government, which he thought was doing its part to
keep prices down, but the market which determined much of the
price.

7.(S//NF) This information tracks with information from a
longstanding contact of Conoff's who reported in May that prices
had risen closer to 30 percent since the beginning of March. A
factory owner who was in Dubai for a visa interview told Conoff
on July 17 that the already bad economic situation in Iran has
been made worse by high inflation, claiming that prices have
increased anywhere between 15-20 percent in recent months. An
employee at Iran's Banking Institute told Conoff on July 19 that
the official inflation rate, as allegedly reported by the
Central Bank of Iran, is approximately 15 percent (Note: It is
unclear why the official rate as provided by this contact does
not match that found in press. End note.) He claimed, however,
that the increase is actually closer to 25 percent, but gave no
indication of the reason for the discrepancy between official
figures and what is actually occurring.

8.(S//NF) Although Iran's government announced on August 19 that
it will proceed with gasoline imports until the Majles settles
the budget issue and issues a bill on gasoline rationing, prices
may be driven even higher if the government's plan to ration
gasoline goes into effect (Ref B). Rationing or higher gas
prices will drive up the cost of transporting goods. This, in
turn, will cause a price hike, further hurting struggling
Iranians. In a July 15 discussion with Acting CG, a Tehran-based
businessman claimed that people do not have the money to pay
higher prices for gas.

Unprincipled Economic Policy Plagued by Corruption
-------------- --------------

9.(S//NF) Iran's economic problems are being exacerbated by
issues with the budget and economic policy. According to the
insurance industry contact, Iran's budget is "totally crazy."
He claimed that Ahmadinejad's administration has "totally
massacred" the budget and that it is nowhere near balanced. A
separate Iranian businessman told Conoff that the government has
not allocated funds in the current budget to cover economic
promises that Ahmadinejad makes on his trips to the provinces,
raising doubts whether these projects will be implemented.

10.(S//NF) The insurance contact further asserted that the
entire Iranian government is "corrupt." He claimed Ahmadinejad
only made a pretext of being hard on corruption during the
election to get votes. Although he promised to get tough on
corruption before his election, his anti-corruption campaign has
thus far achieved few results. This information tracks with what
Conoff was recently told by two-Dubai based Iranian businessmen.
They claimed that Ahmadinejad's picks for several key economic
positions in his administration are well-known to be corrupt,
including the head of Bank Saderat Iran(who previously directed
Saderat's Dubai operations) and possibly the head of the oil
surplus account.

Comment - Ahmadinejad Not Delivering on Promises
-------------- ---

11.(S//NF) Ahmadinejad campaigned on a platform of social
justice and one of his key campaign slogans was "a chicken in
every pot." To date, many Iranians, including Ahmadinejad's core
supporters among the poor and those in rural areas, have yet to
see the economic improvement they were promised. In fact, with
increased prices, the economy's poor overall condition, and the
possibility of gasoline rationing, many Iranians' economic
situation may become worse instead of better. Iranian visa
applicants and contacts have made it very clear that the
day-to-day struggle to make a living and feed their families
supersedes all else, including a desire for greater political or
social freedoms. If the already precarious economic situation of
many Iranians is further threatened, Iranians may resort to
street protests to call attention to their dissatisfaction.


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